Tuesday, April 08, 2003

In reference to my malpractice post here, a reader -- the first to reply to this blog -- writes:

I do not know a good alternative to the present system - but I can tell you of the costs on the side of the defendant.

I am a tax CPA. One of my partners was sued a couple of years ago (malpractice in terminating an S corporation election. That is, for the non practitioner, the individuals owned a corporation whose income (or loss) passed thru directly to them.) My partner discussed their plans, the projected growth, their other income, and recommended terminating the S election.

Well, the next year, we found out they had a substantial loss on the corporate return (not projected by them), and the client sued us because "we" screwed up their individual return. (The loss on the corporate return could no longer offset their personal income.)

The case never went to trial (for a number of reasons - basically, the client had no case. I do not want to give details, but we would have prevailed in a trial.). But it still cost us $25,000 cash, plus a couple hundred hours of my partner's time and aggravation, etc. CPAs are NOT like trial lawyers. We CANNOT bill 1/3 of your refund. We typically bill based on our time - and that time is gone.

We were out $25,000 as a firm, plus the opportunity costs of the lost partner time (there was also some staff time involved in preparing for our defense). The suit was withdrawn. We cannot sue - where do we get our money back? Should we get emotional damages for the fact that someone sued us and then withdrew the suit?

Another example. A client came to us, claiming that their prior CPA had screwed their return. We did a little work for them, and then they found a different CPA firm. They (this former client) has begun a suit against the first CPA. I have had to answer interrogatories and provide workpapers in relation to this suit. I will not be reimbursed for my costs nor my time in this matter. Again, an innocent bystander, supplying at his own cost for the legal system.
The fellow deserves an answer. I'll paraphrase from my reply, to protect his anonymity:

First, just so you'll know, this doesn't sound like the sort of case classic "trial lawyers" go in for: First, because this doesn't sound like a winning case, and second, because the recovery would've had to be pretty big for the amount of work that would go into showing that you were negligent. We *generally* work on contingency fees (which of course means that we get nothing if we lose). Speaking from personal experience, we also charge hourly if the client can afford it and wants to go that way.

Second, depending on how long ago this was, and what state you were in, it might behoove you to see about Rule 11 Sanctions, or a malicious suit case. Not every state has the latter, and most states have the former (to summarize, a rule identical to Federal Rule of Civil Procedure 11, which sanctions -- charges -- lawyers and their clients who bring suits in bad faith). You can also try a suit -- and most states of which I'm aware don't have this -- that's akin to malicious prosecution. Talk to your lawyer about that.

If -- not just in your opinion, but in an objective way -- there was no merit to the suit, report the lawyer who brought the suit to the Bar for your state. We get in loads of trouble for doing that sort of thing; and I'm generally supportive of any enterprise to clean out my profession.*

As far as the discovery: I can't help you with that too much. Third-party interrogatories are like third-party subpoenas: We balance the smaller harm to third parties by so inconveniencing them with the much larger harm of not getting all of the information needed to reach the truth. If they actually depose you, though, talk to your lawyer about charging them for it.

The firm or lawyer asking for the documents, however, is supposed to reimburse copying and postage costs, I'm pretty sure in every state.

I honestly feel bad for this fellow: I'll be the first to admit that this is an imperfect system, created by imperfect men. Sometimes, innocent folks get stung. Small consolation to this guy and his partner, admittedly.

The alternatives, though, are frequently worse. The European model is predicated on the notion that people can't be trusted, juries can't be trusted, only terribly well-educated judges can be trusted. Our system has lasted somewhere on the order of nine centuries because, for all its pitfalls, things like this aren't as common as the legitimate application of justice.

Am I gonna deny that injustice is worked through the justice system? Hell no. I could go on for weeks about things that make my blood boil to consider them. But is the system a malicious venue of oppression? Honestly, I don't think so -- and the consensus in this country has been with me since the Founding.

* Related note: Lawyers aren't really allowed to solicit business -- especially classic ambulance chasing. If you are a doctor, or nurse, or whatever, and lawyers prowl your halls looking for clients -- as opposed to visiting clients who were clients before the lawyers set foot in the hospital -- get their names and report them to the Bar of your state. Please. They give the rest of us a bad name. And if you've been sued, and it really, honestly had no merit, consider doing the same.

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